Thailand may sell dollar bonds for the first time since 2003 to raise money for water-management projects as it seeks to prevent a recurrence of the worst floods in almost 70 years.
The country is considering offering $1 billion to $3 billion of notes due in 10 years or 30 years, in line with recommendations from investment banks, Chularat Suteethorn, director general of the Finance Ministry’s public debt management office, said in a Nov. 30 interview in Bangkok. Thailand will sell the debt “if the time is right and the price is right,” she said, adding that “current pricing is reasonably good.” Chularat declined to give a specific timeframe for the sale.
Southeast Asian markets are attracting funds because they offer higher growth rates and debt yields than developed nations, where central banks have eased monetary policy to spur economic growth. Rising investment and domestic consumption is expected to propel expansion, the Organization for Economic Cooperation and Development said on Nov. 18, predicting an average annual growth rate for the Thai economy of 5.1 percent from 2013 through 2017.
The Philippines and Indonesia, as well as Thai companies including PTT Global Chemical Pcl and Siam Commercial Bank Pcl, have sold dollar-denominated bonds in global markets this year. Thailand sold $300 million of floating-rate notes in 2003, the last time it tapped the international market. The Bank of Thailand forecasts gross domestic product will increase 5.7 percent this year.
A global sale by Thailand would be successful because the country has a higher credit rating than the Philippines and Indonesia, and demand for the nation’s debt outweighs supply, according to Pioneer Investments, which manages the equivalent of $198 billion of assets. Standard & Poor’s rates Thailand BBB+, the third-lowest investment grade, and the Philippines and Indonesia three levels lower at the top junk level of BB+.
“Thailand is planning to come to the external markets after a long time of absence, whereas the Philippines and Indonesia have been among the more frequent issuers,” Yerlan Syzdykov, a London-based portfolio manager at Pioneer said on Nov. 16. “There is certainly an element of higher rating for Thailand vis-à-vis these countries as well as scarcity value that will allow the Thai government to have a positive response from investors and a successful market issue.”
Thailand is also planning to sell 30 billion baht ($978 million) of 25-year amortizing notes this year and 40 billion baht of 15-year inflation-linked debt in the first quarter of 2013, Chularat said. It may issue zero-coupon long-term securities to diversify fundraising instruments, she said.
A global sale would help the government raise money for infrastructure projects, including investments to alleviate flooding, Chularat said. The government will seek Cabinet approval early next year for a proposal to spend 2 trillion baht on infrastructure over the next seven years. Last year, floods disrupted manufacturing and resulted in economic growth of just 0.1 percent.
The yield on Thailand’s 3.125 percent government securities due December 2015 reached a two-year low of 2.84 percent on Nov. 8 and was 2.92 percent today, according to data compiled by Bloomberg. The yield premium investors demand to hold the notes over similar-maturity U.S. Treasuries was 257 basis points from this year’s peak of 309 basis points on May 28.
International investors have bought $28 billion more Thai sovereign securities than they sold this year, according to data from the Thai Bond Market Association. Foreign funds hold about 10 percent of Thai government notes, Chularat said.
“Nowhere else is more attractive than Asia, especially Southeast Asia,” she said. “Thailand is one of the countries they are quite confident about.”